Case Study Audi

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The Volkswagen Group

Table of Contents

1.Executive Summary- 4 -
2.Major Issues at Stake- 5 -
2.1.1.Corporate Level Challenges- 5 -
2.1.2.Is the Volkswagen Group still able to differentiate its brands?- 5 - 2.1.3.Is the Volkswagen’s 2018 sales objective coherent with market demand and growth?- 6 - 2.1.4.Is the financial risk a major issue for Volkswagen?- 8 - 2.2.Audi’s Challenges- 10 -

2.2.1.How does Audi face international competitive environment during its expansion?- 10 - 2.2.2.Are the sales in developing countries, and more particularly in BRIC countries, sustainable?- 12 - 2.2.3.Hungarian plant: how to manage the international value chain?- 13 - 2.2.4.What innovation strategy to adopt?- 15 -

3.Recommendations- 15 -
4.References- 18 -
Appendix- 19 -
Appendix 1: Brand positioning- 19 -
Appendix 2 : VW – Unit Sales Split by Market (2011)- 20 - Appendix 3 : Traditional value chain in the automotive industry- 20 - Appendix 4: Manufacturing plants- 21 -

1.Executive Summary

In its 2018 Strategy, the Volkswagen Group expressed its goal to become a leader in the automotive industry. It bases its strategy on three pillars: economic performance, ecological innovation and thus society fascination. “Our aim is to make the Volkswagen Group the leading automaker by 2018 – economically and ecologically.” said Dr. Martin Winterkorn, Volkswagen’s Chairman of the Board of Management. Concretely speaking, the Volkswagen Group aims at being the global leader in terms of unit sales, customer satisfaction and profitability.

We found out the major issues that could prevent the company to attend its ambitious aims and solutions to avoid these issues:
•The brand confusion: There is a risk that the different brands of the Volkswagen Group start to compete against each other since they are increasingly launching the same market segments. Our recommendation to avoid this issue is to stop the expansion of Volkswagen with the acquisition of Porsche and to increase the brand differentiation within the several brands of the Group.

•The market demand: The automotive industry is highly dependent on the economic growth. Whether Volkswagen can maintain its target sales to over 10 million vehicles a year highly relies on the global economy. It has to keep its strong presence in Europe, while further increasing its market share in emerging countries such as China as well as US which is the largest car markets in the world.

•The financial risk: The financial risk determines the degree to which the Group is affected by economic or industry cycles. Facing a growth of product development costs and labor costs and at the same time a non proportional growth of cars’ prices Volkswagen cash flows from operating activities, is decreasing although the vehicle sales are increasing. To reduce this problem the company may have to augment its profit margin per vehicle by selling more cars in the premium niche market segment (upgrade of the Audi Brand) and by developing a new “very low cost” brand for emerging markets where the regulation standards are lower.

•The Audi’s challenges: Within the Volkswagen portfolio, Audi is supposed to be the premium brand for “normal” domestic cars. However the relationship between Audi and Volkswagen who historically is not producing luxury cars make it hard for Audi to attend the luxury brand image. Therefore Audi needs to make an individual platform that is completely separate from Volkswagen in order to increase the number of its sales. The separation of Audi and Volkswagen activities could also be positive for Audi’s productivity, production efficiency as well as distribution. This will finally result in the possibility to make Audi cars more powerful, more value added and more lucrative better fitting the global market demand for luxury cars.

2.Major Issues at Stake

2.1.1.Corporate Level Challenges

2.1.2.Is the Volkswagen Group still able to differentiate...
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